More cities and states are progressing with reopening efforts following coronavirus shutdowns. Investors looking to gauge the success of those plans may want to look at transportation stocks and ETFs, such as the SPDR S&P Transportation ETF (NYSEArca: XTN).
Transportation assets made for predictable investment victims of the coronavirus outbreak, but XTN could be a valid rebound play.
XTN seeks to provide investment results that correspond generally to the total return performance of an index derived from the transportation segment of a U.S. total market composite index. The index represents the transportation segment of the S&P Total Market Index.
Examining XTN
“Certain stocks are rallying on the belief that the economy will spring back from the deepest and swiftest contraction ever, and virtually no sector is at the heart of that comeback more than trucking,” reports CNBC. “Trucking stocks, a possible leading indicator, have been rallying hard. They went into low gear ahead of the broader market in March, with some hitting their lows in the weeks before the market bottom on March 23.”
The impact of trucking stocks on XTN is palpable as the fund devotes almost 42% of its weight to that group. That’s almost 1,700 basis points above the fund’s second-largest industry weight.
“Our broader cyclical view of transports is unchanged: we have viewed 2020 as a likely cyclical trough for the group, a critical cyclical catalyst for domestic US freight transports,” according to Baird. “The COVID-19 pandemic has clearly added incremental demand risk to the group during 2020, but historically speaking, quality freight transports tend to outperform during periods of U.S. recession.”
XTN also offers adequate leverage to other reopening themes.
There are already travel restrictions in place for international travel, the latest of which includes the UK, but the newest thoughts involve domestic travel. Airlines around the globe are scrambling to hoard cash as demand for flights tumbles after political leaders turn to increasingly more austere measures that have disrupted daily life in an effort to stop the spread of COVID-19.
While the travel and leisure stocks still facing considerable headwinds, the reopening of the U.S. economy, albeit gradual, could provide an assist to XTN.
The ETF is higher by 11.41% over the past week.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.